Alcoa Inc. AA missed second-quarter 2015 earnings estimates, hurt by lower selling prices for aluminum. Prices for the metal remain under pressure due to supply glut. However, revenues beat expectations on the back of stronger results from the company’s aerospace and automotive businesses.

The New York-based company recorded a profit, as reported, of $140 million or 10 cents per share in the second quarter compared with $138 million or 12 cents per share in the year-ago quarter. The reported profit, however, decreased from an income of $195 million or 14 cents per share in the first quarter of 2015.

Alcoa recorded $143 million in restructuring charges in the reported quarter, primarily related to portfolio optimization.

Excluding one-time special items, earnings came in at $250 million or 19 cents per share, ahead of the year-ago earnings of $216 million or 18 cents per share. But earnings per share came in below the Zacks Consensus Estimate of 23 cents.

Revenues rose 1% to $5,897 million in the second quarter from $5,836 million in the year-ago quarter. The increase can mainly be attributed to organic growth, backed by strong aerospace, automotive and alumina businesses. Revenues surpassed the Zacks Consensus Estimate of $5,820 million.

Alcoa reiterated its expectation of 6.5% for global aluminum demand growth for 2015. The company’s shares, which fell around 5% to close at $10.50 on Wednesday, gained roughly 1.1% in extended trading.

Segment Review

Alumina - Shipments in the reported quarter were 2.7 million metric tons on production of 4 million metric tons. After Tax Operating Income (ATOI) was $215 million, up from $38 million in the year-ago quarter and down from $221 million in the sequentially preceding quarter. The sequential decline was mainly due to lower pricing based on both the Alumina Price Index (API) and the London Metal Exchange (LME). This, however, was partly offset by increased productivity and higher volume.

Primary Metals - Shipments in the quarter were 0.6 million metric tons, down 1.3% from the year-ago quarter. Production in the quarter was 0.7 million metric tons, down 11.8% from the prior-year quarter. ATOI was $67 million compared with $97 million in the year-ago quarter and $187 million in the sequentially prior quarter. The sequential decline was due to lower LME aluminum price and decrease in regional premiums. This was offset by lower alumina and energy costs.

Global Rolled Products - Shipments in the quarter were roughly 0.5 million metric tons, down 8.3% year over year. Third-party revenues were $1.7 billion, down 10.3% year over year. The segment posted ATOI of $76 million, which increased 9% year over year and 41% sequentially. The improvement reflects strong productivity gains, record growth of about 200% in automotive sheet shipments, and increased commercial transportation of 10% and aerospace volume of 4%. This was partly offset by lack of metal premium pass-through in Russia, pricing pressure in global packaging, and costs related to the investment in Micromill.

Engineered Products and Solutions - The segment posted ATOI of $210 million, up 4% year over year and 8% sequentially. The year-over-year increase was driven by productivity gains, contribution from acquisitions and volume improvements. These, however, were partly offset by unfavorable price/mix and adverse foreign currency exchange impact.

Financial Position

Alcoa’s cash and cash equivalents stood at $1,311 million as of Jun 30, 2015, up from $1,183 million as of Jun 30, 2014. Long-term debt was $8,713 million as of Jun 30, 2015 compared with $7,612 million as of Jun 30, 2014.

Portfolio Transformation

Alcoa has acquired TITAL – a leading provider of titanium and aluminum structural castings for aircraft engines and airframes. The acquisition has enabled the company to expand its titanium casting capabilities into Europe, with strong customer relationships. TITAL’s titanium revenues are expected to jump 70% over the next five years. Roughly 70% of TITAL’s revenues are forecast to come from commercial aerospace sales in 2019.

Moreover, Alcoa has successfully integrated Firth Rixson which doubles its average revenue content on key jet engine programs. Firth Rixson is expected to increase Alcoa’s revenue by $1.6 billion with additional $350 million earnings before interest, tax, depreciation and amortization (EBITDA) in 2016.

Alcoa’s plan to buy titanium and specialty metal products supplier – RTI International Metals, Inc. RTI – in a $1.5 billion stock-for-stock deal is progressing as scheduled. The buyout is expected to broaden Alcoa’s titanium offerings and add advanced technologies and materials to its portfolio. Alcoa sees RTI to contribute $1.2 billion in revenues in 2019. Its profitability is expected to reach 25% EBITDA margin in 2019.

In the midstream, Alcoa’s Micromill material is gaining commercial traction. The company’s automotive expansion in Davenport, IA shipped record volume of automotive sheet in order to cater to growing customer demand, thus increasing automotive sheet revenues by roughly 180% year over year.

Alcoa’s automotive expansion in Tennessee is also progressing as planned with customer qualifications already taking place. Alcoa has also announced plans to invest in aerospace technology at its Whitehall, MI facility.

In addition, Alcoa has curtailed 443,000 metric tons of alumina refining capacity at Suralco in Suriname. The company is pursuing a transaction to sell the Suralco operations to a Suriname government-owned entity.
In Brazil, Alcoa curtailed the balance 74,000 metric tons of primary aluminum smelting capacity at Sao Luis on Apr 15 and permanently closed the 96,000 metric ton Pocos de Caldas smelter on Jun 30. The company announced plans to permanently close Anglesea coal mine and power station in Australia by Aug 31.

Alumina refinery at Ma’aden-Alcoa joint venture continued to ramp up and is on schedule to produce 1.1 million metric tons of alumina in 2015. The smelter is producing at full capacity and is on target to reach nameplate production of 740,000 metric tons of primary aluminum in 2015.

Alcoa’s remains on track for lowering its position on the global aluminum cost curve to the 38th percentile and the global alumina cost curve to the 21st percentile by 2016.

Outlook

Alcoa expects global aerospace sales to increase 8% to 9% year over year in 2015. The company tweaked its expectations (from the earlier view of 9% to 10% growth) because of a slower buildup in the Airbus A350 and Bombardier C-Series programs.

Alcoa projects 9% to 11% growth for 2015 in the North American heavy duty truck and trailer market, up from the previous expectation of 6% to 8% growth.

In the global heavy duty truck and trailer market, the company lowered its forecast for the year and now expects a decline of 4% to 6% as against earlier projection of 2% to 4% decrease due to slower economic growth in Brazil and China.

For the automotive, building and construction, industrial gas turbine, and packaging end markets, the company’s global forecast remains unchanged. Alcoa estimates an increase of 2% to 4% in global automotive production for the year, with 1% to 4% increase in North America, 5% to 7% global sales growth in the commercial building and construction market; 1% to 3% global airfoil market growth in the industrial gas turbine market; and a 2% to 3% global sales increase in the packaging market.

Alcoa currently carries a Zacks Rank #3 (Hold).

Better-ranked stocks in the mining space include Energy Fuels Inc. UUUU, which carries a Zacks Rank#1 (Strong Buy) and Amerigo Resources Ltd. ARREF with a Zacks Rank #2 (Buy).

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